Rumour mill: Vodafone schemes buy-out of Indian partner

Having declared last year that it wanted to sharpen its focus and reduce its span of operations, Vodafone is said to be looking to gain 100 per cent control of its Indian joint venture Vodafone-Essar.

Vodafone, which currently holds 67 per cent of the shares in the JV, is thought to be planning to acquire the remaining 33 per cent from Essar even though this would exceed the Indian government's limit of restricting foreign ownership to 74 per cent, according to an Economic Times article. However, Vodafone is said to be in negotiations with the chairman of India's Max Group, Analjit Singh, about a joint purchase of the shareholding to stay within the legal limits.

But this acquisition plan has triggered a fierce reaction from Essar, which has accused Vodafone of attempting to gain control of the JV at an artificially depressed value. While Essar is known to want out of the JV, it has been trying to boost the company's market valuation to more than the $5 billion that it could secure by default with the put-option.

But Vodafone's recent action to write down its valuation in the JV--with the support of a new JP Morgan report on the valuation--would indicate that Essar's shareholding could be worth as little as $2 billion.

Vodafone has stated that the fair market value of the JV has to be determined by three international investment banks. If this market value is seen as having been manipulated, as Vodafone claims, then the investment banks would need to ignore that value when making their determination.

The UK-based operator has also increased the temperature by asking the Indian market regulator to investigate allegations of insider trading in India Securities, a listed company of the Essar group. The Vodafone-Essar JV is currently the third-largest operator in India with over 124 million mobile subscribers. Vodafone acquired its 67 per cent stake from Hutchison in 2007.

For more:
- see this Economic Times article
- see this Business Standard article
- see this Cellular News article

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